British Prime Minister Theresa May attends a meeting at the National Cyber Security Centre on April 18, 2018 in London, England. Jack Taylor / Getty

May's heavy defeat in the House of Lords over customs union membership was embarrassing, but could provide her with political cover to make a U-turn without losing face.

A growing number of people believe that the government accepts membership of "a" customs union is the only means of avoiding a hard border in Ireland.

But May faces a dilemma: Losing a vote in the House of Commons could undermine her leadership while coming out in favour of the customs union risks angering the pro-Brexit wing of her party.

LONDON — Theresa May's House of Lords defeat this week was undoubtedly embarrassing. Peers voted by a large majority on Wednesday for an amendment to the Brexit bill which could force the government to think again about its plans to leave the EU customs union.

Such a defeat, if repeated in the House of Commons, would be a major blow to May's Brexit plans and be hugely unpopular among Brexit-supporting Conservative MPs.

However, while the result was superficially bad news for the government, it also offers an enticing route out of May's current predicament on Brexit.

"Several people have told me in the last couple of days that they believe the government's going to do a U-turn on the customs union," Professor Anand Menon, the director of UK in a Changing Europe, a leading Brexit think-tank told Business Insider.

May has consistently denied any plans to retreat on her commitment to leave the current customs union or join any new similar union. However, suggestions of an imminent U-turn on this have been repeated by government sources to both Bloomberg and the Times in recent days. So could we about to see a big climbdown from May?

The least worst option?

REUTERS/Toby Melville May's commitment to leave the customs union is one of the thorniest in the entire Brexit process, clashing as it does with her commitment to avoiding a hard border in Northern Ireland.

A hard border would be hugely damaging both for the integrity of the United Kingdom as well as for May personally. Yet as things stand the UK government has yet to propose any firm way of avoiding such a border while meeting her other promise to break customs ties with the EU.

Defeat on this issue is therefore potentially the least worst option for May and may even be politically advantageous in some respects. Not only would it help solve an apparently intractable problem for May, it could also deal a political blow to Labour, who have attempted to put ground between their Brexit position and the government's precisely on this issue.

"Politically, membership of a customs union might suit May quite well, not least because it skewers Labour," said Menon. "It means the Labour position on Brexit is the same as the government's position, and that's not where Labour want to be."

If that assumption is correct, the question is how Theresa May might navigate a major climbdown without losing face and destroying the unity of her party. Some believe her humiliating defeat in the House of Lords on Wednesday could provide the necessary political cover.

"If the Commons votes for an amendment which requires a change of direction [on the customs union], I think the prime minister will privately be quite pleased," said Andrew Duff, a former MEP and president of the Spinelli Group, a Brussels policy group fronted by Guy Verhofstadt.

Duff believes that May will need to announce a "change of direction" before the European Council in June — when the EU expects the UK to have made significant progress on the Irish border issue — and said a Commons vote could provide her with the means of doing so. She could, in theory, present defeat as a victory for the parliamentary process, and evidence of the House of Commons holding the government to account in Brexit negotiations.

There is another issue which could work in May's favour, too. Recent polling suggests that the public broadly favours membership of the customs union, and it would be easier to sell to Tory voters than single market membership, because it would allow the UK to set its own immigration policy.

Losing another vote in the House of Commons would undoubtedly undermine May's authority. But it's possible that she could frame such a defeat as a valiant one if she remains committed to it up until the point she is defeated.

"Losing half-heartedly isn't a good look, because then May would be accused of not trying," said Professor Menon.

"If losing is her way of dealing with the [pro-Brexit grouping of MPs] European Research Group and with Liam Fox, she needs to put her shoulder to the wheel to try and win," he said.

If she lost the Commons vote in that scenario, she would at least be able to try and placate the hardline Brexiteers in her party by showing she had tried.

A Brexit U-turn is in the post

Carl Court / Getty

The alternative option — coming out in favour of customs union membership — would risk outraging her Brexiteer colleagues, but would at least show strong leadership.

"Her calibre of leaderly qualities are always under question," said Duff. "The brave thing would be to indicate before the Commons voted that she is a lot more flexible on these matters than in the past," he said.

Whether May does decide to use the Commons vote as a front to move for customs union membership remains to be seen.

It is unclear which way parliament would even vote on the issue, but a group of pro-Remain Tory MPs led by Dominic Grieve appear confident that they could defeat the government.

Grieve and his colleagues will be able to test the political temperature on the issue next Thursday, when MPs vote on a non-binding motion which calls for the government to "include as an objective in negotiations ... the establishment of an effective customs union" between the UK and EU.

Whatever happens next week, there is a growing belief that a customs union U-turn is coming. Mujtaba Rahman, managing director at the highly respected political consultancy Eurasia Group, echoed a growing consensus when he told clients in an email last week that customs union membership is now the "basecase" because it is the principal means by which to solve the Irish border issue.

Defeat is never an attractive option for a prime minister. But the alternative — of risking the UK economy and the integrity of the UK by leaving the customs union — looks far less attractive.

A customs union retreat may not be popular with Conservative Brexiteers, but it would have the backing of the majority of MPs, business leaders and the public.

And as the prime minister who will be credited, or blamed, for how Brexit eventually turns out, the short-term embarrassment of a defeat on the customs union is one bitter pill she may prove very willing to swallow.